5/12/2003 @ 12:00AM

Booby Prize

Chris Galvin picked a bad time to inherit the top spot at Motorola. Then he made some bad decisions.

How did
Christopher Galvin
make our dishonor Roll this year with a meager $3.2 million in average annual pay over the past six years? That’s scarcely a lavish sum alongside the paychecks highlighted on page 109. But Galvin’s dubious achievement is only in small part a reflection of his pay. Mostly, it commemorates the wealth destruction that Motorola shareholders have suffered at his hands. When Galvin moved into the corner office in 1997, the stock was trading at $20. Now it’s at $8.

Galvin, now 53, took over the company when it was the world leader in mobile phone handsets, with a 31% global share. He was slow to seize on the shift from analog to digital wireless, and lost ground to the hotshot Finnish manufacturer Nokia and to the newly ascendant Samsung of Korea. Motorola’s global share has drooped to 19%. At least the recent trend is positive, and the company has recaptured its lead in the U.S. market.

Two other parts of
Motorola
are still very sick. One makes base stations for wireless service providers and other nonconsumer telecom gear. The other is a semiconductor business that is still not profitable after the closure of 14 of its 22 factories. Why hasn’t Motorola shuttered these divisions? Deutsche Bank analyst Brian Modoff offers a theory: “The grandson of the founder doesn’t want to be responsible for taking the company apart.”

Other wireless equipment makers haven’t done well recently, either–notably
Ericsson
. Motorola nonetheless comes up short within its peer group (telecommunications), which includes not only depressed equipment makers like
Lucent
but also some robust service providers like
Verizon Communications
. Ericsson isn’t in the comparison group because our pay survey excludes foreign companies.

To his credit, Galvin did not reprice his options as the stock collapsed. But he got 1 million new options last year, which will reward him well even if all he does is restore the stock to its price when he got the top job. His $1.5 million cash bonus last year was partly for returning the company to “profitability.” Just how profitable is open to question. The company says it earned 14 cents per share last year excluding “special items.” Add those back and the figure drops to a loss of $1.09 per share.

Motorola says Galvin has the guts to make tough decisions: He cut 56,000 jobs–more than a third of the total–in two years and has replaced or reshuffled 75% of his senior officers. No plans to replace the most senior one, though.